For older small business owners, the path to boosting their superannuation savings often involves navigating the complex 'work test' requirements. Understanding these rules is crucial for those who want to continue making contributions after reaching age 67.
What Is the Work Test?
The work test is a requirement that applies to individuals aged 67 to 74 who wish to make voluntary super contributions. To pass the test, you must be gainfully employed for at least 40 hours over a 30-day period in the financial year. This employment can be paid work, including self-employment, but must be genuine and not merely nominal.
For small business owners, meeting this test can be straightforward if they are actively working in their business. However, those who have scaled back operations or are transitioning to retirement may find it challenging to prove the required hours.
Key Considerations for Small Business Owners
Small business owners need to carefully document their work hours and ensure they meet the 40-hour threshold. This could include time spent on administrative tasks, client meetings, or hands-on work. It's important to keep a log or timesheet to substantiate claims if needed.
Additionally, the work test applies to both concessional (before-tax) and non-concessional (after-tax) contributions. However, once you turn 75, the work test no longer applies, but contributions are limited until the 28th day of the month following your birthday.
Strategies to Overcome the Work Test Hurdle
If you're a small business owner approaching age 67, consider these strategies:
- Maintain an active role: Even if you've reduced hours, ensure you still work at least 40 hours in a 30-day period each financial year.
- Use the bring-forward rule: If you're under 67, you can make larger non-concessional contributions using the bring-forward rule, which allows you to bring forward up to three years' worth of contributions.
- Consider spouse contributions: If your spouse is under 75, you may be able to make contributions on their behalf without the work test applying to you.
- Downsizer contributions: If you sell your home, you may be eligible to make downsizer contributions of up to $300,000 per person from age 55, regardless of work status.
Seek Professional Advice
Given the complexity of superannuation rules, it's advisable to consult a financial adviser or accountant who specialises in super. They can help you structure your contributions to maximise benefits while staying compliant with the work test and other regulations.
Remember, the work test is designed to ensure that contributions are made from employment income. By maintaining an active business role and keeping accurate records, older small business owners can continue to build their retirement savings.
